The Political and Economic Determinants of Trade Disputes under the WTO

This study developed a conceptual analysis based on an asymmetric deterrence game with incomplete information to analyze how trade disputes arise between a given pair of WTO members. We found that the probability of trade dispute is an increasing function of the level of subsidies curtailments sought by the challenger. We hypothesized the challenger’s demand is determined by the political and economic profiles of the countries involved. An empirical investigation of the roles of these political and economic variables yielded mixed results, highlighting, in some cases, the preeminence of political or economic heterogeneity within dyads and, in other, that of homogeneity. These findings were attributed to the shifting paradigm in international trade with the emergence of economic powers such as China, India, Korea, and Brazil, to name a few, with political and economic profiles different from those of traditional major players such as the United States, the European Union, and Japan.